Gold fell on Tuesday, as steadier stock markets prompted some investors to take profits from bullion, pulling it off a one-month high hit the previous session on worries about a US economic slowdown. Gold has gained 5 percent in the past three weeks, boosted by a flurry of disappointing US economic indicators including Friday's weak jobs data.
"With the equity prices holding nice and firm here, there is less flight to safety element in financial markets in general today," said Bill O'Neill, partner of commodity investment firm LOGIC Advisors. Investors trying to gauge whether the US Federal Reserve will embark on a new round of government bond buying, or quantitative easing, were monitoring comments by Fed officials. They will turn their focus to a speech on Tuesday by Fed Chairman Ben Bernanke on the US economic outlook.
Spot gold was down 0.2 percent at $1,539.59 an ounce at 12:38 pm EDT (1638 GMT), having earlier risen as high as $1,550. US gold futures for August delivery fell $6.40 to $1,540.80 an ounce. On the options front, the CBOE gold volatility index, a gauge of bullion investor anxiety, dropped 2 percent, extending its recent decline.
Gold options trading has been quiet, with some investors selling at-the-money straddles and producers buying puts to hedge against downside risk, said COMEX gold option trader Jonathan Jossen. Silver was up 0.2 percent at $36.82 an ounce.
Analysts said soft US economic data last week had raised questions over the possible extension of quantitative easing. A massive $600 billion Fed bond-buying program to stimulate economic growth is due to expire by the end of June. Gold fell despite a weaker dollar on Tuesday. The US currency slumped when an official at China's foreign exchange regulator said Beijing should guard against risks from excessive holdings of dollar-denominated assets.
Investors expect the European Central Bank will be quicker to raise interest rates than the Federal Reserve, so the euro has risen nearly 10 percent on the dollar this year. Precious metals consultancy GFMS meanwhile said on Tuesday it expected gold, silver, platinum and palladium prices to retain upside potential in 2011, with negative real interest rates remaining the principal driver. Platinum was up 1 percent at $1,822.99 an ounce, while palladium gained 2.8 percent to $806, with traders reporting buying of the metal for exchange-traded funds.